Elephant Man

by Steven M. Cohen  •  Oct 6, 2008 at 9:00 am

http://www.buyselljump.com/2008/10/elephant-man

Remember as a kid going to the circus and seeing some poor fellow with the unenviable job of following the elephants around with a shovel? Congress, in its phony humility and feigned sincerity, wants to be viewed in a similar role, dedicated and hardworking while performing the unpleasant but necessary task of cleaning up Wall Street's mess.

Problem is, Congress is really more dung-flopping elephant than cleanup man.

So its pathetic efforts last week largely consisted of a politics-pervaded, rushed and ill-considered effort to clean up a toxic waste pile largely of its own making. And even then, it couldn't help itself from, well, helping itself by piling unrelated pork on the bailout bill, all in the course of counterproductive political grandstanding.

The soaring oratory echoing off the marble walls decrying Wall Street's misdeeds left out several inconvenient facts about actions by politicians that helped create the current crisis: namely, Fannie, Freddie, and the Community Reinvestment Act.

It was Congress, after all, that created government-sponsored Frankentstein's monsters like Fannie and Freddie, publicly-traded companies whose shareholders reaped the upside while sticking taxpayers with the inevitable downside. It was Congress that in recent years expanded their purview, thereby exponentially increasing the cost of bailing them out.

And the CRA was nothing more than an exercise in politicial correctness by Congress designed to convince the unsophisticated that it was extending the dream of home ownership to people of modest means. Trouble was, this gesture had real-world unintended consequences that proved to be a double whammy. Aside from forcing banks into making loans they knew would not be repaid, various "community" and "public interest" groups used the CRA as an extortion tool to pry "contributions" out of these financial institutions.

Sure, Wall Street took these bad mortgages, ground them up into the sausage of CDOs, and sold this putrid mix to a variety of investors as well as keeping plenty of it on their balance sheets. But the sloppy lending practices that became prevalent in the mortgage industry were countenanced, even encouraged, by the very institution that now purports to be riding to the rescue.

The mendacity of Congress has never been put on more vivid display than during its handling of the credit crisis. You'd think they'd be too embarrassed to use the bailout bill as an opportunity to lard up their constituencies in an election year--but then again, shame is an emotion unfamiliar to most members of Congress, a commodity about as rare as principled conduct.

Take, for example, House Speaker Nancy Pelosi, who, oozing politics from every pore, could not resist delivering a caustic partisan diatribe on the floor of the House just prior to the first vote. What a great way to reach across the aisle for important Republican support! In the Speaker's view, it was more important to continue to bash Bush and his policies than to address the sinking economy and the unravelling markets.

It's equally distressing that the Republican candidate is busy trying to out-populist the Democratic candidate, thereby adding additional idiotic content to the public discourse. Constant references to "Wall Street greed and corruption" as the sole culprit does not serve to educate the public; nor does it help to distinguish your position from your opponent's.

By pandering to and patronizing the electorate in the identical manner and to the same degree as his opponent, McCain also missed an important opportunity to expose the contribution of Democrats in Congress to this mess, especially in light of the fact that he vigorously opposed their expansion of Fannie and Freddie and is on record in support of reining them in. His me-tooism also makes him look bland, a la the hapless 1996 candidate Bob Dole: just another Republican who couldn't get his message across.

There were more constructive alternatives that Congress could have considered, including some that might have sharply reduced the government's cash burden. But as usual, perhaps as always, politics trumped honesty and common sense. Political well-being was placed ahead of the country's well-being.

And Congress remains its own kind of circus where the performers go through the motions of cleaning up their own mess.

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